How union leaders sell out workers

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Do union members understand what is being done in their name on superannuation? By Kenneth Davidson.

How's this for a trade-off: you get an increase in taxes equal to 100 per cent of what otherwise would have been a wage increase? I would guess that if any trade union leader put this up as a serious proposition for wage negotiation, there would be a rank-and-file revolt.

And yet, in principle and in practice, this is basically the policy that the secretary of the ACTU, Greg Combet, put in an address to the National Press Club last week.

According to The Australian Financial Review report of the speech, Combet said the unions would push to increase employer superannuation contributions from 9 per cent to 10 per cent in future enterprise bargaining rounds, in exchange for accepting lower wage rises.

Why? According to Combet, "there is widespread agreement that, at 9 per cent of people's incomes, the current level of superannuation contributions will not be enough to deliver a decent income on retirement. A contribution of 15 per cent will be needed."

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Really? What Combet (and the finance industry that backs his view) forgets is the age pension. Before the federal budget, 14 industry groups (including the ACTU) operating under the label of "Call for Super Action" made a submission to the Government asking for a cut in the tax on superannuation contributions and "acknowledgement and acceptance" that the goal for super should be 65 per cent of retirement income.

They gave the example of a worker earning $45,000 a year whose lump sum after paying 9 per cent would only be sufficient to buy an annuity of $13,900.

But as Alan Kohler pointed out (Business Age, 7/6), they forgot the age pension which, for a married couple, after the means test that takes into account their private annuity, would give them a pension of $31,546 - or 70 per cent of pre-retirement salary.

There is nothing in this for lower-paid workers. Cutting the contributions tax would mean even less money for spending on public schools, public hospitals and welfare.

For most low-income earners who are at present eligible for a full or part pension, the higher post-retirement annuity financed by substituting higher compulsory super levies for wage increases, is offset by a lower age pension.

The superannuation industry wants a fully privatised pension system. To fully fund the present age pension - costing $18 billion a year - would require a revolving fund of some $250 million under the control of the super industry. The industry charges fees mostly within the range of 1 to 2 per cent of assets (about $350 billion), although some funds charge well above this.

According to the Australian Consumers Association, these apparently moderate fees are basically the same as charging between 20 to 35 per cent on super contributions each year. (By comparison, the cost of collecting income taxes is about 1 per cent of the revenue raised each year.)

The ACA gives the example of an employee who, after 45 years of unbroken work, on an initial salary of $25,000 growing to $45,000 on retirement, paying 9 per cent of salary into a fund with a real return of 6 per cent, accumulates $507,000 before fees of $121,000 (based on 1 per cent of capital) or $210,000 (based on 2 per cent of capital).

According to Louise Sylvan, the former chief of the ACA and now deputy chairwoman of the Australian Consumer and Competition Commission, "given the Byzantine complexity of the structure of this industry - with trustees hiring fund consultants to tell them about fund design, who in their turn hire the fund managers to do the managers' work, who in turn hire the stockbrokers to do the investment work - it is no wonder so much money is being extracted, although no one gets much in the way of penalties for lack of performance."

In fact, all this competition to generate higher than average returns is, for the most part, a beauty contest between fund managers, because past performance is no sure guide to future performance, and investment managers can't outperform a perfectly functioning market in the long term unless they are prepared to engage in illegal insider trading.

The only other way the super funds can boost their returns is to finance the investment bankers pushing public-private partnerships (PPPs), which are replacing government borrowings as the financial vehicle for infrastructure investment. This yields higher returns, but it means that eventually superannuants will be paying far more for services than if infrastructure projects had been financed by government borrowings.

According to Combet, quoted in BRW (29/1/04), unless infrastructure is built through PPPs, it will never be built: "While I would love a situation where federal, state and territory governments are funding infrastructure, I have to deal with the reality that this isn't the case."

He is supported by Garry Weaven, a former senior ACTU official who is now executive chairman of Industry Fund Services. Weaven wants to see union-backed industry funds expand their investment in PPPs: "The ideological heat has gone out of the argument (because) rightly or wrongly, governments are reluctant to fund infrastructure."

The reason governments are no longer prepared to fund infrastructure has nothing to do with economics and everything to do with powerful vested interests that are happy to hide behind the complexity of this issue to enrich themselves at the expense of workers and the public interest.

It is a pity the trade union leadership appears prepared to join them.